SENATE BILL NO. 202 "An Act relating to school transportation; relating to the base student allocation used in the formula for state funding of public education; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated that the Senate Finance Committee sponsors this legislation. He shared that this legislation would change the methodology of the grant program that the State has used to reimburse K-12 public education school districts for local pupil transportation expenses. In addition, he stated that the bill would increase the per student base allocation funding to $4,169, an increase of $159 per student, by absorbing Learning Opportunity Grants that total $2.2 million into the student education foundation formula. Co-chair Wilken suggested that the Committee address these two bill components separately. JOHN ALCANTRA, Government Relations Director, National Education Association of Alaska (NEA-Alaska) stated that the State's 12,700 public school employees who belong to NEA-Alaska realize that the Committee's recently adopted operating budget bill is contingent on the two issues addressed in this bill. He voiced appreciation for the Committee's efforts toward increasing the level of the base student allocation funding which he declared would provide school districts "stability of funding and help them reach some of the requirements of the State (Education) Standards." Mr. Alcantra voiced appreciation for the $159 per student increase, but announced that NEA-Alaska's "ultimate" base student allocation goal is $4,280 per student. He communicated that according to nationally recognized business research [not provided], the $4,280 funding level would assist school districts in addressing projected "one-year inflationary costs and just one year of unmet needs." Continuing, he informed the Committee that this research recommends a five-year phased in increase of $365 per student, plus additional funds to address the inflationary erosion of funding. However, he stated, that in recognition of the State's fiscal situation, NEA- Alaska is limiting their funding request to the one-year funding request of $4,280 per student. He stated that this request would cost the State an additional $23 million in FY 04 and would assist in accomplishing the State's constitutionally mandated provision to provide quality public education. Mr. Alcantra reminded Committee members that the FY 03 budget was based on a specific crude oil barrel price along with a specified draw on the Constitutional Budget Reserve (CBR). He attested that because the average price per barrel for the initial ten months of the fiscal year exceeded the specified price, the amount drawn from the CBR account was reduced. Therefore, he suggested that some of those CBR savings could be used to support the proposed $23 million FY 04 funding increase that would be needed to adequately support student education funding. [NOTE: At this point, a brief and indiscernible dialogue between Senator Bunde and the testifier transpired.] Senator Bunde asked whether a "guarantee of results" such as the majority of high school students passing the State's High School Graduation Qualifying Examination (HSGQE), could be provided were this funding request approved. Mr. Alcantra remarked that education standard requirements are important. He stated that no guarantees could be provided to ensure that all students, including those identified by measures such as the federal No Child Left Behind Act, would pass the high school exit exam; however, he avowed that an appropriate education funding level would assist districts in providing the most important aspect of an education which is providing quality teachers, quality support professionals and other necessary resources. Co-Chair Wilken mentioned that Senator Bunde was one of the prime sponsors of the HSGQE legislation. BRUCE JOHNSON, Representative, the Alaska Association of School Boards, thanked the Committee for consolidating the Learning Opportunity Grants into the total funding allocated to the base student allocation formula as it would assist school district funding. He testified that while the issue of flat funding remains, it could be addressed at another time. Senator Hoffman voiced concern regarding "the eroding floor" of unmet funding needs, as referenced in the "Change to Floor" column in the Department's fiscal note #1 analysis. He noted that were this legislation adopted, $1.4 million would be allocated toward that eroding floor; however, he asked the Department to provide the Committee with the remaining "unmet" funding need level for each school district. Co-chair Wilken stated that the Department of Education and Early Development would address Senator Hoffman's concern during its forthcoming testimony. MARY FRANCIS, Representative, Alaska School Administrators Association, testified that the administrators "add their voice to those who support the increase in the base student allocation" as it assists in addressing the funding "erosion" that has been taking place. She avowed that, "this is a more protected mechanism for raising the student allocation Co-Chair Wilken stated that this concludes the testimony regarding the base student allocation funding. He specified that the transportation component of the bill would now be addressed. EDDY JEANS, School Finance Manager, Department of Education and Early Development, responded to Senator Hoffman's "eroding floor" question by stating that the Department would develop and distribute to Members a schedule that would reflect "the remaining balance of the supplemental funding floor" were this bill to take effect. He estimated that, were this legislation adopted, approximately $1.5 million could be allocated toward the remaining supplemental funding floor balance of approximately $9.5 million. Co-Chair Wilken read from a school transportation cost schedule [not provided] that denoted the increase in pupil transportation expenses from FY 97 to FY 03. He stated that transportation costs in FY 97 amounted to $32.8 million in general funds and a total of $53.9 million in general funds in FY 03. He stated that this equates to an eleven-percent increase per year. He stated that numerous options, such as awarding contracts, are being proposed to address this expense. Mr. Jeans explained that currently the State reimburses districts for transportation expenses according to specified percentage levels that are determined by such things as whether the route meets the minimum distance from a school or meets the minimum number of students per route requirements. He pointed out that exceptions are currently in place to allow reimbursement for situations wherein a local school board might authorize a bus route in an area that does not meet the minimum distance requirement but is deemed to have hazardous conditions. Mr. Jeans stated that, in an effort to contain transportation expenses, this proposal would provide a grant to each district based on the total amount of the district's FY 03 transportation expenses divided by the number of students enrolled that year. He continued that the resulting number would be identified as the base per student dollar. This base dollar amount, he continued, would then be multiplied by the current year's enrollment to determine the grant total, specific to that district. He mentioned that were the district to lower its transportation costs by, for instance, consolidating routes, the resulting savings could be used by the district for other purposes. Mr. Jeans pointed out that, even though the Department has encouraged districts to seek transportation efficiencies, costs have continued to increase. He noted that in addition to reimbursing districts for their transportation expenses, the current program includes a provision that provides a built-in inflation factor allowance. Mr. Jeans attested, that, in his experience, these transportation contracts have not provided savings because "there was little incentive" to the school district to negotiate the price of the contract with the transportation provider. He stated that this grant program would provide the district with "the flexibility" to negotiate with the provider. Co-Chair Wilken referred the Committee to the Department of Education and Early Development fiscal note #2 which denotes the impact of the grant program on each school district. Co-chair Wilken asked Mr. Jeans to explain the "$1,200 cap per student" as noted in the fiscal note #2 spreadsheet. Mr. Jeans responded that the Department is making a "policy statement" by specifying $1,200 as the maximum limit the State would pay per student for transportation expenses. He communicated that five districts currently exceed this limit: the Alaska Gateway District with a rate of $1,464 per student; the Bristol Bay District with a rate of $1,322; the Copper River District with a rate of $1,300; the Delta/Greely District with a rate of $1,351; and the Southeast Island District with a rate of $1,234. He pointed out that private entities are under contract in these districts to provide student transportation. He commented that, "it is conceivable" that districts could reduce transportation costs by conducting that service "in-house." Mr. Jeans allowed that costs would be more difficult to negotiate in areas where there is a single bidder or limited competition. Senator Taylor summarized that this legislation would allow individual school districts to receive transportation funding, but at a level based upon their FY 03 funding. Mr. Jeans affirmed that the determination would be based on the FY 03 per student transportation funding amount as it relates to current student enrollment. He voiced that were student enrollment to lower or increase, the amount allocated would follow suit. Co-Chair Wilken opined that this methodology, if adopted, would continue until such time as the Legislature changes it. Mr. Jeans concurred. He forecast that the Legislature might alter the amount as a result of school district lobbying for a percentage increase that would be allocated across the board. Senator Taylor asked whether this legislation could "lock in a number" on a statewide basis. Mr. Jeans stated that rather than designating a specific amount, the grant level would fluctuate according to a district's student enrollment each year. He stated that this proposal is projected to cost the State $54 million in FY 04. Senator Taylor surmised that were the number of students to remain the same, the grant total would remain constant. Mr. Jeans concurred. Senator Taylor argued, therefore, that this proposal would reward districts with increasing enrollment and "punish" those with lowering enrollment. Mr. Jeans countered that the current reimbursement program is viewed by school districts as a punishment "because their contracts have inflationary adjustments built into them." He stated that this "vested interest" proposal would provide districts with the ability to negotiate contracts and to revisit their current transportation system in order to reduce costs or generate savings. These savings, he attested, could then be used for other purposes in the district. Mr. Jeans expressed that, under the current system, were the Municipality of Anchorage to lower its transportation costs, the savings generated at the State level would then be distributed to other areas of the State as opposed to being allocated toward other Anchorage expenses. He stated that were this legislation adopted, in this scenario, Anchorage would retain those savings and could use them as determined by the district. SFC 03 # 80, Side A 10:37 AM Senator Taylor agreed that this would be beneficial to districts that have this ability; however, he expressed that districts experiencing a declining enrollment would suffer. He argued that the proposal does not address the fact the districts with declining enrollment would still be required "to pick up students at the end of the road." Districts with declining enrollment, he attested, would receive "a double hit" as they would receive less transportation money and less money from the base student allocation factor. He stated that this proposal should include a hold harmless clause for districts with decreasing enrollment. Senator Hoffman acknowledged Senator Taylor's concern regarding the expenses and requirements that face districts with declining enrollment. Furthermore, he voiced concern that this legislation would punish rather than reward those districts that have already lowered their transportation expenses, by receiving a lower per student amount than awarded to those districts that have exerted little effort toward addressing the issue. He commented that this raises a question of fairness. Mr. Jeans verified that the proposal is based on current district expenditures. He acknowledged that some districts with single transportation bidders have experienced substantial increases in expenses as opposed to districts with competitive situations. He continued that, by providing their own transportation, some districts might experience "cheaper transportation." Mr. Jeans remarked that the Administration's position is that the current reimbursable system does not promote cost containment, and he commented that this proposal would allow local districts to make independent decisions regarding transportation. Furthermore, he stated that current regulations allow districts to charge user fees, but he remarked that because districts are reimbursed for their expenses, this option is not utilized. He stated that this option would continue to be available under the new system. Senator Hoffman reiterated that districts whose expenses approach the $1,200 per student limit could realize "substantial savings;" however, he contested that the districts "that are well below" that limit would not have similar options. He suggested that a flat rate per student be provided to all districts as he attested this might address the inherent problem with this proposal. STEVE KALMES, Director of Transportation, Anchorage School District testified via teleconference from Anchorage to voice that contrary to the Department's testimony, he does not contribute the rising costs of student transportation to the current reimbursement program, as he contended, such things as the cost of buses, wages, driver training, fuel, and insurance drive expenses. He noted that adherence to the Department of Education and Early Development's mandate that transportation must be provided for special needs students incurs enormous expense to the District. Mr. Kalmes disclosed that, in order to contain costs, the District has actively sought bidders and, with five bidders, "the prices were what they were." He communicated that one of the District's largest concerns regarding this grant proposal is how to address the high cost of transporting special needs students. He disclosed that the costs associated with transporting special needs students amount to approximately 42 percent of the District's total transportation expenses and equates to ten times the cost of transporting a regular program child. He exampled that "the most expensive route in the district" is the one that transports special needs students from the Mat-Su valley to the Alaska State School for the Deaf that the District operates for the Department of Education and Early Development. Mr. Kalmes understood that the grant amount would increase as enrollment climbed; however, he voiced surprise that funding would decrease were the opposite to occur. He stated that as enrollment increases, those students are absorbed within an existing bus route. However, he contended that were the number of students on a particular route to decline, that route would still be required to operate. He suggested that, were the grant program implemented, the FY 03 base level be used as the level that funding not drop below. Co-Chair Green communicated that she had served on a committee that addressed the needs of special education programs in the State. She noted that the Anchorage School District met with that committee regarding the numerous education programs the District conducted. She identified that many of those programs were optional rather than mandatory programs. Therefore, she asked whether the District was mandated to operate the Alaska School for the Deaf (ASD). Mr. Kalmes responded that the District is under contract with the Department of Education and Early Development to operate the ASD. He could not verify whether the program was mandated or optional. Co-Chair Green identified ASD as being an optional program, and she asserted that the costs associated with running that program, including transportation costs, are included in the base student allocation calculation. She stated that the District should identify which programs are conducted on an optional, contractual basis verses those that are mandated. Senator Olson asked whether the special needs bus transportation is provided by the District. Mr. Kalmes responded that the transportation is comprised of a combination of District and contracted routes. BARBARA SCHUHMANN, Parent, testified via teleconference from Fairbanks to suggest that the Department of Education and Early Development leave the current program in place. She opined that other cost containment options such as a route analyses, exist. She continued that this legislation contains assumptions such as that the same percentage of students rides buses in every district and that all costs are equal in all districts. She specified that parents rely on school bus service, and she expressed that the service should be viewed as a transportation and public safety service rather than being viewed as an education system service. She stressed that the risks involved in reducing routes should be investigated. Senator Bunde asked whether school districts, particularly the Anchorage School District, have considered charging user fees to assist in offsetting the cost of school transportation. Mr. Kalmes responded that an Anchorage citizen review panel recently asked the Department of Education and Early Development how a user fee program would affect the current reimbursement system. He commented that the current policy tends to be a disincentive to this approach because the Department determined that the reimbursement amount would be lowered by the same amount collected from the user fees. Mr. Jeans verified that other districts have not pursued this option for that very reason. Senator Bunde asked whether this option would be possible under the grant program system being proposed. Mr. Jeans responded that a rider fee could be collected without an impact on the proposed grant system. Senator Taylor countered that there is no language in the proposed grant system that would require a transportation system to be operated; therefore, he declared that a District could eliminate transportation and keep the money. Co-Chair Wilken stated that this scenario would be a local issue. Co-Chair Wilken ordered the bill HELD in Committee. RECESS 10:56 AM / 5:38 PM